Bloomberg News

Anadarko Claims Act of God in Contract Case After Spill

May 29, 2012

(Corrects identity of lawyer’s client in 10th paragraph.)

Anadarko Petroleum Corp., in what will be the first case arising from the 2010 Gulf of Mexico spill to go to trial, argues a U.S. ban on deep-water drilling qualified as an act of God that allowed it to end a rig lease.

Anadarko, in a dispute set for trial today in Houston, terminated its lease contract for Noble Corp. (NE:US)’s offshore oil rig in June 2010, after President Barack Obama’s May 27 announcement of a six-month ban on deep-water drilling following the BP Plc (BP/) spill. Anadarko sued Noble, asking the court to rule the contract was “lawfully terminated” because the moratorium should be considered an act of God, or “force majeure,” that prevented use of the Noble Amos Runner rig as of May 28.

Noble, seeking as much as $102 million in damages for lost lease payments, countersued Anadarko for breach of contract. Noble contends the moratorium wasn’t a force majeure and Anadarko could have used the rig for other operations.

“There is a fact issue on whether a force majeure condition was in effect,” U.S. District Judge Vanessa Gilmore said May 3 rejecting motions by both sides for judgment without a trial. “There is also a fact issue as to whether Anadarko had a just excuse for terminating the contract.”

Gilmore is scheduled to begin hearing both sides today in a nonjury trial. An Anadarko loss would force it to pay for a rig it couldn’t use, the company has argued in court papers. An Anadarko win would enable it to improperly cancel the contract and shift moratorium losses to Noble, the rig-owner said.

Spill Lawsuits

The April 2010 blowout and explosion on the Deepwater Horizon drilling rig killed 11 workers and led to millions of barrels of crude oil leaking into the gulf. The accident prompted hundreds of lawsuits against London-based BP; Transocean Ltd. (RIG:US), the Vernier, Switzerland-based owner and operator of the Deepwater Horizon; and Halliburton Co. (HAL:US), which provided cementing services. Those suits are consolidated in New Orleans before a different federal judge.

BP agreed in March to pay an estimated $7.8 billion to resolve most private plaintiffs’ claims for economic loss, property damage and spill and cleanup-related injuries. The settlement doesn’t cover federal government claims, those of Gulf Coast states Louisiana and Alabama, and many private plaintiffs, including casinos and financial institutions.

The Deepwater Horizon incident also caused federal regulators to temporarily halt oil and gas drilling in U.S. waters deeper than 500 feet (152 meters) so that safety standards could be evaluated and improved. The moratorium idled 33 rigs, including the Noble Amos Runner.

“This is the only force majeure case that’s come out of the drilling moratorium that’s going to trial,” Paul Dobrowski, lead lawyer for Baar, Switzerland-based Noble, said in a phone interview before the trial.

Earlier Settlement

Dobrowski represented Diamond Offshore Co. in a similar lawsuit against Anadarko that was settled out of court in May 2011.

John Christiansen, an Anadarko spokesman, didn’t respond to phone and e-mail messages seeking comment on the trial. Alison Smith, a lawyer for the company, declined to comment on the case.

Anadarko based in The Woodlands, Texas, is the second- largest U.S. independent oil and natural-gas producer by market value, after Apache Corp.

The lack of force majeure claims following the deep-water drilling ban may indicate that “Noble has the stronger argument” in this case, said Tom Ajamie, a Houston attorney who isn’t involved in the case, said in an interview.

Riots, Earthquakes, Hurricanes

“Anadarko could have used the rig in other places,” Ajamie said. “Force majeure usually means outrageous things -- riots, earthquakes, hurricanes. Here you have a presidential moratorium that lasted six months.”

Most other oil companies didn’t break their deep-water drilling contracts and negotiated lower day rates to do other types of work during the moratorium, said Ajamie, a business-law specialist. Anadarko “could have used the rig. It just would’ve been more expensive,” he said.

The Noble Amos Runner’s force majeure provision includes war, certain strikes, quarantines, epidemics, blockades and rules or regulations imposed by governmental authorities that would make continuation of operations impossible, Anadarko said in court papers.

That provision in the contract would require Anadarko to pay the full rate of $435,000 a day for a maximum of 15 consecutive days during the force majeure condition, after which no day rate was payable, Anadarko said. Anadarko also claims the blowout prevention equipment aboard Noble’s rig didn’t meet new safety rules imposed by regulators after the spill.

Gilmore, in the May 3 order, said the case may hinge in part on the timing of Anadarko’s actions.

Plugging Well

Regulators ordered Anadarko to stop drilling in deep Gulf waters on May 28, 2010, and the oil company notified Noble the same day that it was invoking the force majeure provision in its contract. The Noble Amos Runner continued working for three more days to wind down the drilling operation and safely plug the well.

Anadarko’s ability to keep working to plug the well indicated a force majeure couldn’t have been in effect when the notice was served, Noble said in court filings.

“Anadarko’s termination under the force majeure provision was improper, and amounts to anticipatory repudiation of the contract,” Noble said in a May 21 filing. Anadarko could have used the rig for other operations, such as injection wells or by relocating it, Noble said.

Anadarko ‘Premature’

Anadarko was “premature” in invoking the force majeure clause in the contract, Gilmore said in her May 3 order. A force majeure caused by government regulations may have been in effect after May 31, 2010, she said.

Gilmore said Anadarko, even with its premature invoking of the clause before the 15-day period expired, may be “discharged from paying damages” to Noble because there is a “fact issue as to whether performance of either party was possible after May 31, 2010.”

The nonjury trial is expected to last four or five days, according to a court filing.

The case is Anadarko Petroleum Corp. (APC:US) v. Noble Drilling (U.S.) LLC, 4:10-cv-02185, U.S. District Court, Southern District of Texas (Houston).

To contact the reporters on this story: Margaret Cronin Fisk in Southfield, Michigan, at mcfisk@bloomberg.net; Laurel Brubaker Calkins in Houston at laurel@calkins.us.com

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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Companies Mentioned

  • NE
    (Noble Corp plc)
    • $31.37 USD
    • -0.55
    • -1.75%
  • RIG
    (Transocean Ltd)
    • $40.34 USD
    • -0.93
    • -2.31%
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